Inflation May Be Lower, But Are You Better Off?

This week’s inflation data brought a little bit of welcome news, namely that the overall inflation rate has fallen once again, this time to 7.1% year-to-year. To markets, this is a sign that the Federal Reserve’s monetary tightening is starting to bear fruit, and that the Fed is firmly in control of things. But looking under the hood, things don’t look quite so rosy.

The big question when it comes to inflation, however, is not what aggregates look like, but how it impacts individuals’ bottom lines. Are you better off now that inflation rates are starting to decline?

The Problem With Aggregates

One of the biggest problems with how inflation rates are calculated is that they’re calculated according to a hypothetical basket of goods. This basket includes food, clothing, healthcare, energy, and housing. Because of the basket’s makeup it may not accurately reflect the actual inflation that is eroding the well-being of American households.

Let’s assume that the average household spends most of its money on rent and utilities (or a mortgage), food, gas, and healthcare. If you look at those numbers, they’re not looking too healthy.

Food at home is up 10.6% year on year, rent is up 7.9%, gasoline is up 10.1%, and medical services are up 4.4%. Utilities are up significantly too, with electricity up 13.7%, natural gas up 15.5%, and fuel oil up 65.7%. So all of you in the Northeast are getting hit hard.

Do any of those numbers look like they average out to 7.1%? If not, that’s probably why you and so many Americans are feeling the pinch of inflation even worse than the government thinks you are.

If you’re fortunate enough to have a mortgage that you locked in at a low interest rate, you’re thankfully spared from the rising price of housing. But for the millions of Americans who rent, or those who want to buy but can’t because of ever rising housing prices, they’re at the mercy of markets that continue to rise.

None of us can survive without food, and prices keep rising by double digits. Now that it’s wintertime and we have to heat our houses, it’s becoming more expensive to do so. Nothing is changing for most people, despite the supposed fall in inflation rates.

What Does the Future Look Like?

No one knows what the future holds, or how the Federal Reserve will act as a result of these numbers. Markets seem to expect the Fed to pivot at some point, but when the Fed pivots it’s likely going to be after the Fed realizes that recession is certain. In that sense, a pivot isn’t a good thing.

The M2 money supply has been slowly decreasing in recent months, the first sustained decrease in money supply in recent memory. That would seem to foretell a continued decrease in the inflation rate. But it could still take a while for the inflation rate to fall back to 2%.

After all, it took months for the Fed’s unprecedented balance sheet expansion and money supply increases to begin pushing inflation up, so we would expect it to take months for inflation to start falling significantly in response to the Fed’s actions. And if the Fed were to short circuit its monetary tightening and stop too soon, inflation could plateau at a permanently higher rate.

Imagine what the economy would look like if inflation rates were stuck at 5-6% for years. Real wages are already falling, and have fallen for nearly two years. With higher inflation rates, your income would take a pretty significant hit every year. And over time, inflation would eat away at your wealth even worse.

A 6% inflation rate means that prices triple in less than 20 years. Even at a 5% inflation rate, prices triple in under 23 years. We’ve been blessed with low inflation rates for decades, and have come to assume that that was going to be the status quo for a long time. But things change, and now we’re seeing sustained inflation for the first time since the 1970s.

Protecting Against Inflation

Aside from the negative impacts of inflation on the economy and on Americans’ financial well-being, inflation is making it difficult for all sorts of industries to navigate the future. After all, the last time inflation was problematic was in the early 1980s, and only those in their 60s and older were adults the last time this happened.

Pretty much everyone in this country under 60 has come of age in a time of relatively low inflation and strong economic growth. Your financial adviser has probably never seen sustained inflation. Most Wall Street bankers have never seen inflation like this. Just about every CEO in America has never seen inflation like this.

All of a sudden every industry has to react to a world in which prices are not just climbing, but climbing unpredictably. How do you plan for the future when you don’t know and can’t reasonably guess what prices will be like six months or a year from now? Entire patterns of behavior are being rethought and reworked as a result of this inflation.

For American investors, many are turning to tried and true means of protecting their wealth, such as buying gold and silver. Gold and silver have served as safe havens and stores of wealth for centuries, and their performance as an inflation hedge continues to make them a popular choice for wealth protection today.

Has inflation begun to take a bite out of your savings? Are you worried about maintaining your purchasing power and standard of living in the future? Do you want to protect yourself against rising inflation and the damage of recession? Then maybe it’s time to start thinking about protecting your assets with gold and silver.

With over $1 billion in precious metals placements and over a decade of service, Goldco has helped thousands of satisfied customers benefit from owning gold and silver. Give us a call today and let us help you start safeguard your savings with gold and silver.